Making Procurement Performance Metrics Matter: 3 Questions to Ask Before Settling on KPIs
November 25, 2015
Last month, Kari Ostgaard presented a comprehensive list of 15 Procurement Metrics that Save Money in her blog post. While each of the metrics listed represent real and measurable value, tracking all 15 may seem like a daunting challenge. As one reader put it, “Where do I begin?” This blog offers assistance for those who are contemplating or just getting started in a procurement performance management program.
Choosing which metrics to include in a procurement performance metrics program depends on your culture, your current business realities and what you are attempting to accomplish. Are you looking for a running set of metrics that will provide meta-level insights on procurement performance? Or, do you want to track performance against objectives for a particular procurement initiative? In either case, answering the following three questions will help to ensure the relevance, reliability and success of your performance metrics program.
In making decisions about what to measure, choose Key Performance Indicators (KPIs) that are important to your organization’s goals. Don’t only choose metrics that matter to the procurement department. Ask yourself, why does a process or outcome matter in the context of larger organizational goals, and what are important indicators for reaching those goals? While savings and increased value from suppliers may ultimately be the goal, these outcomes will be dependent on first achieving process changes. If you are just getting started on a procurement transformation initiative, measuring cycle times and supplier engagement represent vital leading indicators for success. Gaining early consensus among stakeholders on why to measure will help determine what to measure.
How to Measure?
How will you collect metrics that are current, accurate and unbiased in a manner that is not disruptive to the business? Is the level of effort required worth it? Over what period of time will you collect these metrics, and what benchmarks will be used for comparison? Gaining consensus on these questions about how to measure is as important as achieving agreement on why and what to measure.
When to Share?
All too often, program managers don’t think about when they will share the metrics collected until too late in the process. Think of your performance metrics program as an intelligence gathering initiative. Communicate results to stakeholders throughout the performance measurement process, and use them as a tool to sense and respond to what’s working and what isn’t. Engage business stakeholders in the process of analyzing results and making process improvements, and acknowledge success when improvements have been achieved.
In any initiative to gather performance data you’ll find support and opposition. There will be those who believe in the old adage that, “you can’t manage what you don’t measure,” and those who believe that any statistics can be manipulated to represent a point of view. Getting supporters and skeptics onboard requires understanding the performance variables that are important to them and to the enterprise at large.
In summary, to make the most of your performance metrics program:
- Measure what’s important to your organization
- Collect metrics in a manner that is objective and unobtrusive
- Share results with stakeholders throughout the process in order to diagnose problems and celebrate success
Looking for help in measuring, improving and demonstrating the value of procurement in your enterprise? Email us at firstname.lastname@example.org to schedule a call to discuss your goals and procurement optimization objectives.
The Shelby Group